Businesses raise doubts over Vince Cable's pay proposals

Government proposals to crack down on lavish executive pay packets have drawn
a mixed response from the business lobby, with some arguing the changes are
unlikely to solve the problem of excessive pay.

The mandatory shareholder vote appears to be the most contentious change for industry put forward by Vince Cable, who outlined his plans on Monday.Photo: PA

Manufacturers' organisation the EEF warned the wide-ranging proposals, which include introducing a binding shareholder vote on remuneration, risk "aiming a large sledgehammer against the wrong nut".

The criticism follows concerns that the Government is trying to fix excessive pay only once companies have awarded it, rather than preventing out-of-control salaries.

The planned changes, which form the biggest shake-up of corporate pay in a decade, also miss a trick on helping employers create well-paid opportunities for the whole workforce, the EEF said.

The CBI, which has warned that vetoing pay packets did little to tackle the heart of the excessive pay problem, said that binding votes could force investors to second-guess and "man-mark" directors, which "does not make for good corporate governance".

However, the business group welcomed the move to ditch making the vote retrospective, affecting only future pay policy and avoiding legal pitfalls.

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The mandatory shareholder vote appears to be the most contentious change for industry put forward by Vince Cable, the Business Secretary, who outlined his plans a day earlier than expected on Monday.

Under the rules, 75pc of shareholders would need to vote in favour of pay proposals, rather than a simple majority which is currently the case.

Fidelity, the fund manager with stakes in some of Britain's biggest companies, backed the plan saying it will give shareholders a real say on pay.

But the National Association of Pension Funds was more cautious, warning a binding vote must not hinder the effective management of businesses, or hamper the dialogue between shareholders and boards.

Other proposals, including measures to outline greater transparency on how pay is rewarded, were broadly welcomed by businesses and shareholders, including leading investor group the ABI. Under the plans, remuneration reports will be required to split future pay policy from a section on how pay policy has been implemented previously.

Measures requiring each executive's pay to be published as a single figure, as well as opening up the performance criteria for long-term incentive plans and bonuses, should help to improve the often unclear link between pay and performance, employers said.

Elsewhere, the CBI backed measures for all quoted companies to claw back executive pay where necessary, to prevent rewards for failure. Only financial services firms are required to adopt clawback mechanisms.

Mr Cable killed off the proposal to have workers' representatives on remuneration committees, riling unions but pleasing businesses which said the move would be unworkable. But he wants more companies to consult workers on pay and is pushing for more diversity on committees.

He will also outlaw serving executives from sitting on the remuneration committees of other large companies, in an attempt to end "crony capitalism" in the City.